Another earnings season means traders will be treated to a slew of updates from the financial services sector. In fact, some of have already arrived, suggesting that bank ETFs may be worth a look.
For aggressive, tactical traders that could bring opportunity with leveraged ETFs such as the Direxion Daily Financial Bull 3X ETF (FAS ) and its bearish counterpart, the Direxion Daily Financial Bear 3X ETF (FAZ ). FAS attempts to deliver 300% of the daily performance of the Financial Select Sector Index. FAZ seeks 300% of the daily inverse performance of that widely observed financial services basket.
See more: Trade Bank Earnings Beats or Misses With FAS and FAZ
The headlines that traders crave when deploying bank ETFs such as FAS and FAZ are coming, and that spigot will stay open over the next few weeks. But it’s not just earnings reports that could bring FAS and FAZ into focus for short-term traders. Any commentary offered by banks and asset managers about the state of private credit markets could move these ETFs. Of course, the possibility exists that some company-specific issues and comments could propel FAS and FAZ over the near-term.
Breaking Down the Banks
JPMorgan Chase (JPM), the largest domestic bank and the second-largest holding in the index tracked by FAS and FAZ, is among the financial services names to watch.
“Our thesis that JPMorgan Chase is the most competitively advantaged bank in our coverage remains unchanged, evidenced by top market share across global investment banking fees, institutional trading revenue, domestic deposit market share, merchant acquiring, and credit card issuance,” said Austin Taggart of Morningstar.
Bank of America (BAC), the fifth-largest component in the Financial Select Sector Index, is another earnings play. It’s also a net interest income story that could sway either FAS or FAZ in the days ahead.
“While our long-term net interest margin forecasts are a bit more muted, we note that continued maturation of the held-to-maturity security portfolio and the denominator effect associated with balance sheet growth should materially improve net interest income in the near to medium term,” added Taggart.
Citigroup is another banking behemoth that could affect the Direxion ETFs over the near-term.
“While Citigroup lacks the domestic footprint among retail clientele and middle-market firms that its money-center peers profitably enjoy, Citigroup’s unmatched global reach enables it to service multinational corporations at a level that few, if any, could duplicate,” observed Taggart.
JPMorgan, Bank of America and Citigroup combine for nearly 18% of the index tracked by FAS and FAZ.
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